Intellecap has released the 3rd edition of “Inverting the Pyramid” — its annual review of the microfinance industry. The focus of the report has changed each year to reflect the current questions being faced by practitioners, thought leaders and clients within the space. Last year‘s report aimed to address issues like scale and replication; this year’s report looks to build upon these issues to provide an even more robust perspective on the industry.
One of the first issues the report discusses is the prospect of overheating within the microfinance space. The report looks to key macro- and microeconomic indicators to analyze the likelihood of a bubble bursting and subsequent defaults. The report also inquires to the sufficiency of regulation aimed to prevent such bubbles. The report concludes that at this point although localized bubbles have emerged as pockets, overall the microfinance space is not big enough as an asset class to trigger systemic problems. However, the report also indicated that the field was growing at a phenomenal rate (year on year growth of clients is 91%), and the relevance within the overall financial system has also grown accordingly. Given this rapid growth, it would seem intuitive to assume that some of it is happening at the expense of social impact. The report shows instead that the average lending rates have decreased over time due to competition and previously untapped regions, specifically urban poor, are now being targeted by microfinance.
Chapter 2 of the report provides a clear and thorough review of the microfinance industry generally within India and beyond. In fact, this chapter could operate as an excellent primer for anyone interested in learning more about the mechanics of the space and also key figures that help define its magnitude and scope. Some of the most powerful figures display demand for microfinance broken down by district and a clear flowchart of the various sources of funds.
The next chapter looks to the microfinance institutions (MFIs) themselves and attempts to explain changes occurring within and among these organizations. Some of the trends highlighted are the pressure for consolidation experienced after the credit crisis, increased efficiencies resulting from operational best practices and other sources, and increases in overall profitability. Like any asset class the performance indicators suggest significant stratification across the board, with high performing funds far outpacing those on the lower end.
Chapters 4 and 5 focus on investors and MFIs and their clients respectively. Each provides an excellent resource in understanding the motivations, needs and challenges for both stakeholders. The report finishes up by looking to the future of microfinance. It highlights the melding of social and commercial priorities and highlights the potential regulation can have on redefining the space. Overall the report addresses most if not all of the key issues surrounding the microfinance space and serves as an excellent jump off point for anyone looking to understand the field in detail.